Resources analysts in hot demand

RBS analyst Sam Berridge joined the bank straight from a post in the Ivory Coast. In Africa, the geologist got malaria three times, was held up at gun point and evacuated due to civil war.

He would see groups of analysts fly down from London, cast a disparaging eye over the African mining operations and jet back to their lives of luxury. It was then he decided there was an easier way to make a crust, and it proved a good call to make.

While stockbroking firms explore ways to trim team numbers, resources analysts have been left to explore for the next big thing. The China boom has investors worldwide tuned into the Australian mining sector – placing resources analysts in high demand.

RBS analyst Sam Berridge has been ranked the top metals and mining stock-picker in this year’s StarMine Analyst Awards. Yet he steers well clear of local market behemoths
BHP Billiton
and
Rio Tinto
. “Your ability to add value and find an angle on companies that size is very difficult. You couldn't pay me enough to do BHP," he says. But it is probably an exaggeration because, as every analyst knows, it all comes down to price.

StarMine says Berridge’s best call this year was a long-held buy on
Iluka Resources
. Berridge says the call was well received by clients. Some of his peers, including StarMine’s second-best metals and mining stockpicker, JPMorgan’s Fraser Jamieson, also backed the story. Berridge says a better call was his sell on Aquila Resources. “We looked at their assets and for the life of us couldn’t understand how that company’s market capitalisation got to where it did," he says. “[The call] raised a few eyebrows but turned out to be correct."

Another gold and mineral sands-focused mid-cap analyst, RBC Capital Markets’ Geoff Breen, the best earnings estimator for metals and mining, says the role of the analyst has changed dramatically over the years. Not long ago, Australian miners had all their assets in Australia. Now he has to travel to Brazil to run his eyes over Minara Resources, Laos for PanAust and so on.

“It’s interesting how well Australians do out of Australia," Breen says.

The former mining engineer says key to being a top-rating analyst is having a capable associate to help maintain the model and a feel for market psychology.

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While it’s all well and good working out a miners’ earnings forecasts and production numbers, he says it is important to be able to read the market’s views on the stock and triggers that could drive share price performance. It’s helpful that today’s analysts spend more time talking directly to portfolio managers and buy-side analysts.

Breen says more clients call him directly, as well as going through the sales traders.

The keen golfer also says business has become less formal, with more meetings outside of the regimented office environment.

While Breen and Berridge scout the small and mid cap space for the next big then, Goldman Sachs’ Neil Goodwill has had success following the likes of BHP and Rio Tinto.

Goodwill, who has been with the firm for 16-years, covers BHP, Rio Tinto, coal, iron ore and uranium. StarMine ranked Goodwill the third best metals and mining stockpicker - behind Berridge and Jamieson - and fifth best overall.

Goodwill’s best calls this year included a “sell" on uranium miner Energy Resources of Australia, and a long-held “buy" on the soon-to-be acquired Macarthur Coal.

On ERA he says: “there were inconsistencies in the ore reserve position of the company and the production profile and very high risks in terms of their future projects", while he liked Macarthur purely on its valuation.

Goodwill’s best pick at the moment is BHP.

“From a risk/reward perspective, clearly there will be stocks in the right commodities that will do better than BHP, but I think BHP can handle not only what our forecasts are expecting but it can outperform many other scenarios," he says.